The Federal Bailout: What affect does it have on your financial provider?
By Ryan McClure, Communications Manager, Safety National, St. Louis, Mo.Appeared in June 2009 Missouri Merchants and Manufacturers Association newsletter.
Right now, financial providers are deciding if it is wise to keep Troubled Asset Relief Program (TARP) funds. Keeping the funds requires adherence to added government regulations and scrutiny, while returning TARP funds involves raising enough capital to meet the government’s extensive requirements. What has your bank decided and what will that mean for your company’s financial security and ability to receive loans?
If you are curious about your bank’s TARP status, Pro Publica, a nonprofit newsroom that provides investigative journalism in the public interest recently posted a helpful tool listing financial institutions that received TARP funds, which can be sorted by state. The database can be found at http://bailout.propublica.org/main/list/index.
Any financial institution that accepts TARP money can be subject to guidelines and new federal regulations that are still unclear. While these guidelines are currently unknown, many speculate that added regulation and scrutiny could make it impossible to conduct every day business in a timely manner. While most understand that a lack of regulation over certain financial industries was a key component in the economic downturn, few institutions want to be subjected to the overregulation that could come with TARP fund oversight.
The federal government has already shown that it will place heightened scrutiny on executive compensation for financial institutions. If this scrutiny continues, many banks fear it will be difficult to attract the talent needed to thrive in the market. In addition, the Wall Street Journal reported early this month that the SEC is planning to require companies to disclose how lower-level employees are compensated in addition to those in the C-suite. With each added layer of reporting and the lack of clearer definition regarding the guidelines that will be placed on institutions that use TARP funds, banks and their customers will continue to question the merits of accepting bailout money and may consider giving the funds back.
However, giving the funds back is harder than it sounds. The Fed has set moving standards for paying back TARP funds. Frequently those standards involve raising more capital than originally required by the Fed to get out of TARP. In its defense, the government is performing its now infamous “stress tests” to ensure that repaying TARP funds will not boomerang banks right back to where they started: unable, or unwilling, to provide loans to businesses like yours.
So where does that leave you and your company? It is important for each bank and it’s customers to look at the impact federal regulation will have on each institution and situation. Either way you look at it, rates are at some of the lowest levels in recent history. Some of that is due in part to the TARP infusion. And, banks that are working to give TARP funds back must first prove to the federal government they have enough capital to keep lending to customers.
Safety National is a versatile alternative market insurance provider that offers a broad range of alternative risk funding products through independent insurance agents and brokers. Founded in 1942 in St. Louis, Mo., Safety National is the leading provider of excess workers’ compensation coverage to self-insured employers and groups nationwide and has provided that type of coverage longer than any other company in the U.S. The company is licensed to provide workers’ compensation insurance in all 50 states, the District of Columbia, and Canada. Safety National is a wholly owned subsidiary of Delphi Financial Group, Inc. (NYSE: DFG), a $6 billion insurance holding company.
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The views expressed in the above article are solely the author's opinions and do not necessarily reflect the opinions or analysis of Safety National Casualty Corporation.